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Sharing d Sharing deal eal i insight nsight European E uropean F Financial inancial Services M&A S er vices M & A news news and views a nd v iews

Thi s re ep port provides perspect ives on the recent t rend s and f fu ut ure developments in the European Financial Ser vices M& A market and in sights into emerging invest ment o op pportunit ies. Febr uar y 2012

Contents
03 Welcome 04 Data analysis 10 Looking ahead 11 Methodology 12 About PwC M&A advisory services in the financial services sector 13 Contacts

38bn
of European financial services deals in 2011

16bn
of European financial services deals in the final quarter of 2011

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Welcome to the first edition of Sharing deal insight for 2012.

Sharing deal insight provides perspectives on the latest trends and future developments in the financial services M&A market, including analysis of recent transactions and insights into emerging investment opportunities.

Nick Page
PwC UK nick.r.page@uk.pwc.com

to Precision Capital, a Qatari-backed investment group.1 The list of major deals in the final quarter of 2011 also included further consolidation in Spain (Banco Populars acquisition of Banco Pastor) and the return of a nationalised bank to the private sector in the UK (Virgin Moneys acquisition of Northern Rock). Banks will be looking to divest more of their non-core operations in 2012. Notable areas of speculation include the possible sale of Dexia Banks Turkish subsidiary, DenizBank,2 a significant opportunity in the fast growing Turkish market. The pressure to restructure and divest will be heightened by new capital demands coming into force in 2012.3 A number of groups that have received state support also face fast approaching deadlines for selling operations earmarked by the European Commission. While banking deals have made up the lions share of recent activity, the move to divest non-core holdings can also be seen in Old Mutuals sale of Skandias operations in Sweden, Norway and Denmark. Subdued demand and pressure on costs are likely to spur further divestment and consolidation in this still largely fragmented sector. How quickly and how strongly this impetus for deal activity comes to bear in 2012, clearly depends on the level of uncertainty in the market. Our annual CEO survey highlighted the extent to which a volatile and uncertain economic environment is holding back investment within the financial services sector.4

Fredrik Johansson
PwC UK fredrik.johansson@uk.pwc.com

In this edition, we look at what the mixed picture we have seen in the M&A market in recent months tells us about what to expect in the year ahead. The year 2012 will continue to see strong strategic impetus for deal activity and significant opportunities coming up for sale on the one side, and the potential constraints of market uncertainty on the other. The big question is which of these conflicting forces will win out. It is notable that 2011 ended with a flurry of financial services transactions, bucking the downward trend seen in other industries. As we anticipated in the previous edition of Sharing deal insight, the sovereign debt crisis is proving to be a strong catalyst for deal activity, both defensive and opportunistic. The nationalisation of Dexia Bank Belgium was quickly followed by the sale of its Luxembourg-based private banking arm

Yet, the survey findings also highlight the risks of standing still in a financial services market whose transformation is likely to have been accelerated by the sovereign debt and wider financial crisis. European financial services businesses face the challenges of how to adapt to closer government control, shifts in demand and demographics, and the impact of technology on customer expectations and the way products and services are sold. While immediate economic and regulatory concerns will continue to dominate the agenda in 2012, forward-looking businesses are also going to be using acquisition to position themselves for the changing industry landscape ahead. As a result, the M&A market in 2012 may prove to be a lot more interesting than many might expect. We hope that you find this special edition of Sharing deal insight interesting. Please do not hesitate to contact either of us, if you have any comments or questions, or would like to discuss the issues in more detail.

1 Dexia SA media release, 20.12.11 2 Wall Street Journal, 02.11.11 3 EBA media release, 26.10.11 4 PwCs15th Annual Global CEO Survey, published on 25.01.12 PwC Sharing deal insight 3

Data analysis

This edition of Sharing deal insight reveals an imbalanced picture. Data for the full year shows that 2011 was the quietest year for European financial services M&A since this publication first appeared in 2003. In contrast, the fourth quarter of 2011 saw a burst of deal activity, making it one of the busiest quarters since the end of 2008. Several high-profile deals announced during the fourth quarter also suggest the potential for stronger financial services M&A during the first half of 2012. Even so, given the current unpredictability of financial markets, it is too early to say whether this is the start of a new wave of restructuring in the industry.

2011 was the quietest year for European financial services M&A since 2003
After a year of relative calm in 2010, many commentators expected 2011 to be a busy year of restructuring in the European financial services industry. In fact, a modest start in the first quarter of the year (9.8bn of deals) was followed by the deepening of the eurozone crisis and growing macroeconomic uncertainty. This confounded most companies attempts at planning, and deal values declined rapidly during the second (6.7bn) and third quarters (5.0bn) of the year. Despite a marked recovery in deal values during the final quarter of 2011 which we discuss in the next section 2011 was therefore the quietest year for European financial services M&A since this publication first appeared in 2003. The years total figure for announced deals with disclosed values declined by 25% from 50.3bn in 2010 to just 37.9bn (see Figure 1). Government-led transactions played a comparatively small role, accounting for 12% of total values

and highlighting the fact that the decline in M&A reflected weak deal appetite in the private sector. A breakdown of the years deals by subsector shows that, despite declining, banking transactions retained their habitual dominance (see Figure 2). The comparative stability of the insurance industry was reflected in a fourth consecutive year of steady but subdued deal activity. Despite widespread expectations of disposals by European banks, the total value of asset management M&A fell to its lowest level since 2006.

25%
The years total figure for announced deals with disclosed values declined by 25%

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Figure 1: European FS M&A by value (bn), 20032011

250 200 150 100 50 0 2003 2004 2005 2006 2007 2008 2009 2010 2011

The Top 20 deals of 2011 further illustrate the importance of banking M&A during the year (see Figure 3 overleaf). Restructuring by banking groups often under financial pressure and the acquisition of weakened banks, accounted for no fewer than 14 of the years 20 largest deals. The largest banking deals were concentrated in Russia, Spain, Ireland, Benelux and the UK. Most of these were domestic transactions, but Safra, Wells Fargo, Western Union and Sberbank also announced cross-border acquisitions during the year. Insurance is represented by three deals aimed at building scale and diversification, two of which involved Swedish targets. The list is completed by one large private equity deal (Carlyles acquisition of the RAC), one paymentsfocused transaction (Western Unions purchase of part of Travelex) and Deutsche Borses buyout of Eurex, its joint venture with Swiss rival SIX. As discussed, asset management deals are notably absent.

n Deals ex. Govt n Govt deals Source: PwC analysis of mergermarket, Reuters and Dealogic data

Figure 2: European FS M&A by value (bn), analysed by subsector, 20032011

160 140 120 100 80 60 40 20 0 Banking Insurance Asset Management Other

n 2003 n 2004 n 2005 n 2006 n 2007 n 2008 n 2009 n 2010 n 2011 Source: PwC analysis of mergermarket, Reuters and Dealogic data

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Figure 3: Top 20 European FS deals by value, 2011

Month Oct Feb Dec Nov Jan Oct Sep Jun Jul Jan Oct Nov Dec Mar Dec Apr Jul Jun Oct Jun Sep Target company Dexia Bank Belgium Bank of Moscow (46%) Skandia Insurance Co Bank Sarasin & Co La Caixa (Banking operations) Banco Pastor Bank of Moscow (34%) RAC Bank of Ireland (37%) VidaCaixa Adeslas (50%) KBL European Private Bankers Northern Rock Dexia Banque Internationale Troika Dialog Burdale Financial Holdings TransCredit Bank Travelex UK (Global Business Payments) Findomestic Banca Lansforsakringar Fondliv Eurex Zurich Volksbank International Target country Belgium Russia Sweden Switzerland Spain Spain Russia UK Ireland Spain Luxembourg UK Luxembourg Russia UK Russia UK Italy Sweden Switzerland Austria Bidder company SFPI (Belgian govt. vehicle) VTB Bank Skandia Liv Grupo Safra Criteria CaixaCorp Banco Popular Espanol VTB Bank The Carlyle Group Investors led by Fairfax Financial Holdings Mutua Madrilena Automovilista Precision Capital Virgin Money Holdings Precision Capital Sberbank Wells Fargo Bank VTB Bank Western Union BNP Paribas Lansforsakringar AB Deutsche Borse Sberbank Bidder country Belgium Russia Sweden Brazil Spain Spain Russia USA Ireland Spain Luxembourg UK Luxembourg Russia USA Russia USA France Sweden Germany Russia Sub-total Other Grand total Deal value (m) 4,000 2,557 2,473 1,787 1,776 1,349 1,275 1,123 1,120 1,075 1,000 931 730 722 690 676 670 629 595 590 585 26,353 11,563 37,916

Source: PwC analysis of mergermarket, Reuters and Dealogic data

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Figure 4: European FS M&A by value (bn), Q1 2010Q4 2011

1. 3.3bn AXA SA (UK life and pensions businesses) Resolution Limited 2. 1.4bn KBL European Private Bankers SA The Hinduja Group 1. 3.9bn Deutsche Postbank AG (70%) Deutsche Bank 2. 3.1bn Bank Zachodni WBK SA Banco Santander 3. 2.3bn RBS WorldPay Investor Group 4. 2.0bn RBS Group (318 branches) Banco Santander 1. 2.6bn Bank of Moscow OAO (46%) VTB Bank OAO 2. 1.8bn Caja de Ahorros y Pensiones de Barcelona La Caixa (Banking operations) Criteria CaixaCorp SA 3. 1.1bn Vidacaixa-Adeslas Seguros Generales (50% Stake) Mutua Madrilena Automovilista SL 1. 4bn Dexia Bank Belgium 2. 2.5bn Skandia Insurance 3. 1.8bn Bank Sarasin 4. 1.3bn Banco Pastor 5. 1bn KBL EPB

25 20 15 10 5 0

1. 1.3bn BNP Paribas Luxembourg SA (47%) BGL BNPP 2. 1.2bn RBS Sempra Commodities LLP (European & Asia operations) JP Morgan Chase

1. 3.8bn Allied Irish Banks plc (91%) Ireland 2. 1.1bn Bluebay Asset Management Plc Royal Bank of Canada

1. 1.1bn RAC Plc The Carlyle Group, LLC

1. 1.3bn Bank of Moscow (34%) VTB Bank OAO 2. 1.1bn Bank of Ireland (37%) Group of investors led by Fairfax Financial Holdings

Q1 10 8.6bn

Q2 10 11.1bn

Q3 10 21.2bn

Q4 10 9.5bn

Q1 11 9.8bn

Q2 11 6.7bn

Q3 11 5.0bn

Q4 11 16.5bn

Source: PwC analysis of mergermarket, Reuters and Dealogic data

The final quarter of 2011 saw a marked recovery in financial services M&A
A quick scan of 2011s Top 20 table shows that nine of the years largest European financial services transactions took place during the fourth quarter of the year. The last three months of 2011 saw a sudden jump in the total value of deal activity to 16.5bn, the strongest figure since the third quarter of 2010 (see Figure 4). This represents a quarter-on-quarter increase of 330% (from 5.0bn) and an improvement of 74% compared with the final quarter of 2010, when total deal values were 9.5bn. The quarterly growth in financial services deal values was all the more remarkable, given an overall decline of 41% in Europe-wide M&A across all industries during the last three months of 2011.5 Financial services deal values in the fourth quarter received a boost from the nationalisation of Dexias Belgian banking operations at a cost of 4bn, the first large government-led deal since the nationalisation of Allied Irish Banks in December 2010. However, the quarter also saw a marked acceleration in the value of small and mid-market deals. The total value of announced M&A transactions priced below 1bn more than doubled, from 2.6bn in the third quarter to 5.9bn.

The total value of announced M&A transactions priced below 1bn more than doubled, from 2.6bn in the third quarter to 5.9bn.
In addition to the nationalisation of Dexia Bank Belgium, the fourth quarter saw the announcement of four other deals valued at 1bn or more. These were: Old Mutuals sale of Skandias operations in Sweden, Norway and Denmark to Skandia Life for 2.5bn. This is a reverse takeover by Skandia Life, which had retained its mutual ownership structure despite having come under the control of Old Mutual in 2005. The deal is in line with Old Mutuals strategy of non-core divestment. It was 2011s largest European insurance transaction, and accounted for a notable quarter-onquarter jump in insurance deal values (see Figure 5 overleaf). Separately, Old Mutual announced the sale of Skandias Finnish arm to local insurer Op-Pohjola for an undisclosed sum. Grupo Safras acquisition of Rabobanks majority stake in private Swiss bank Sarasin for 1.8bn. Rabobank had been looking to sell Sarasin for some time, but was under no pressure to do so quickly. BrazilianSwiss private bank Safras offer was reported to have been chosen over that of Swiss rival Julius Baer.6 Banco Popular Espanols 1.3bn acquisition of Banco Pastor. This was a deal notable not only for its size, but also because it represents a step towards further consolidation among Spains private sector banks. Much of the focus of Spanish banking M&A during the past two years has been on the mutually owned Cajas, which have merged rapidly in response to capital and liquidity problems. Precision Capitals 1bn acquisition of KBCs Luxembourgbased private banking arm, KBL European Private Bankers. Precision is a Luxembourg vehicle backed by the ruling family of Qatar. In another Top 10 deal, Precision also acquired Dexias Luxembourg private banking business for 730m during the quarter, but it is not clear whether it plans to operate these two businesses jointly.

5 Collapse in M&A amid debt turbulence, Financial Times, 21.12.11 6 Safra buys Sarasin stake, Thomson Reuters, 25.11.11 PwC Sharing deal insight 7

Figure 5: European FS M&A by value (bn), analysed by subsector, Q1 2010Q4 2011

16 14 12 10 8 6 4 2 0 Q1 10 8.6bn Q2 10 11.1bn Q3 10 21.2bn Q4 10 9.5bn Q1 11 9.8bn Q2 11 6.7bn Q3 11 5.0bn Q4 11 16.5bn

their main markets, or business lines. Some of these disposals were made by distressed institutions, but many continue to reflect a drive for greater strategic focus. Avivas recent decision to sell its life insurance operations in Hungary, Romania and the Czech Republic to MetLife is an example of just such a deal.7 International groups announcing non-core disposals during the last quarter of 2011 included Ageas (formerly Fortis), Allied Irish Banks, AXA, Banco Popular, Barclays, Citigroup, Daiwa, ING, Mapfre, Marfin, SEB and Western Union. Private equity investment in insurance: Several private equity firms made investments in insurance targets during the last quarter of 2011. The highest profile transaction saw financial services specialist J C Flowers acquire Belgian insurer Fidea from the KBC Group for 244m. Augur Capital of Germany also acquired Ageas German life insurance business for an undisclosed sum, and UK litigation insurer Firstassist was acquired by commercial litigation fund Burford Capital for 12m. Management buyouts: Several management buyouts were announced during the quarter, an indicator of low valuations. The largest was the MBO of loss adjuster Davies Group from Lloyds Banking Group for 70m in a deal backed by Electra Partners. Another notable MBO involving Polish securities firm Dom Maklerski was valued at 43m and backed by Nabbe Investments of Luxembourg. Other MBO targets included Barclays Private Equity, UK insurance broker Cobra, Allianzs business in Kazakhstan, and a fund of funds manager owned by private bank Edmond de Rothschild. Private equity mergers: The quarter saw several private equity firms merge with rival partnerships. Most notably, Coller Capital acquired Credit Agricole Private Equity for 300m. Two other French deals were the merger of mid-cap firm AtriA with counterpart Naxicap, and ACGs takeover of Viveris Management.

n Asset Management n Banking n Insurance n Other Source: PwC analysis of mergermarket, Reuters and Dealogic data

244m
The highest profile private equity transaction saw financial services specialist J C Flowers acquire Belgian insurer Fidea from the KBC Group for 244m.

The fourth quarters Top 10 financial services deals (see Figure 6) were completed by some interesting midmarket transactions. Once again, banking restructuring was at work, with the UK Government selling Northern Rock to Virgin Money for 931m. Bank of Ireland also sold its UK asset finance business Burdale to Wells Fargo for 690m, in a comparatively rare overseas deal intended to strengthen Wells international commercial finance capabilities. The theme of Nordic insurance consolidation was also reinforced, with Swedish general insurer Lansforsakringar acquiring its unit-linked counterpart Lansforsakringar Fondliv for 595m. Finally, the London Stock Exchange purchased the remaining 50% in index compiler FTSE International for 533m, its largest deal since buying Borsa Italiana in 2007. Many of the LSEs larger international rivals also own index businesses. Looking beyond the ten largest deals, there were a number of themes at work in the quarters financial services transactions. We note four in particular: Steady flow of non-core disposals: Large banking and insurance groups continue to dispose of subscale and other non-core units that lie outside

7 Aviva in 48m sale of European life units to MetLife, FT Adviser, 30.01.12 8 PwC Sharing deal insight

Figure 6: Top 10 European FS deals by value, Q4 2011

Month Oct Dec Nov Oct Oct Nov Dec Dec Oct Dec Target company Dexia Bank Belgium Skandia Insurance Co Bank Sarasin & Co Banco Pastor KBL European Private Bankers Northern Rock Dexia Banque Internationale Burdale Financial Holdings Lansforsakringar Fondliv FTSE International Target country Belgium Sweden Switzerland Spain Luxembourg UK Luxembourg UK Sweden UK Bidder company SFPI (Belgian govt. vehicle) Skandia Liv Grupo Safra Banco Popular Espanol Precision Capital Virgin Money Holdings Precision Capital Wells Fargo Bank Lansforsakringar AB London Stock Exchange Group Bidder country Belgium Sweden Brazil Spain Luxembourg UK Luxembourg USA Sweden UK Sub-total Other Grand total Deal value (m) 4,000 2,473 1,787 1,349 1,000 931 730 690 595 532 14,087 2,386 16,473

Source: PwC analysis of mergermarket, Reuters and Dealogic data

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Looking ahead
Making intelligent predictions remains difficult. Some of the M&A themes we have discussed in this paper were anticipated in the last edition of Sharing deal insight, which analysed the impact of the eurozone crisis on financial services M&A in Europe. It also predicted that the crisis could act as a catalyst for deal activity in specific areas of European financial services during the first half of 2012. Some of the areas we highlighted included: foreign investment in Turkish financial services; restructuring in Greece and Italy; additional consolidation among Spanish banks; further banking and insurance M&A in Russia and Central & Eastern Europe; loan portfolio sales; asset management disposals in Western Europe; and private equity investment in distressed targets. After such a quiet year in 2011, it is tempting to view the fourth quarters surge in deal activity as an indication that our predictions for 2012 will be fulfilled or even surpassed. Having swung so low during the past two years, can the pendulum of financial services M&A swing back strongly in 2012? Despite some stabilisation in financial markets since the start of the year, it is too early to say for sure. We still believe 2012 looks promising from an M&A perspective, but with so many factors pulling in different directions, unpredictability remains the most predictable feature of the European financial services M&A market.

After such a quiet year in 2011, it is tempting to view the fourth quarters surge in deal activity as an indication that our predictions for 2012 will be fulfilled or even surpassed.

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Methodology
The Data analysis section in this issue include financial services deals: Reported by mergermarket, Reuters and Dealogic (see Figure 7). Announced in 2011, and expected to complete. Involving the acquisition of a >30% stake (or significant stake giving effective control to the acquirer). Acquisitions of Europe-based FS targets where a deal value has been publicly disclosed. Our analysis excludes deals that, in our view, are not pure FS deals involving corporate entities, or entire operations, e.g. real estate deals and sales/purchases of asset portfolios where the disclosed deal value represents the value of assets sold.

Figure 7: European FS deals quarterly summary

Deal value in billions Asset Management Banking Insurance Other Total deal value Corporate PE Government Other Undisclosed Total deal value Domestic Cross border Total deal value Q110 1.7 4.4 2.0 0.5 8.6 7.5 0.8 0.3 8.6 3.9 4.6 8.6 Q210 1.0 5.8 4.1 0.3 11.1 10.8 0.0 0.2 0.0 11.1 7.5 3.6 11.1 Q310 2.4 14.8 1.8 2.3 21.2 17.0 4.2 0.0 21.2 10.2 11.0 21.2 Q410 1.5 5.5 1.6 0.9 9.5 4.5 1.1 3.9 9.5 7.1 2.4 9.5 FY10 6.6 30.4 9.5 3.8 50.3 39.8 6.1 4.3 0.0 50.3 28.7 21.6 50.3 Q111 1.0 5.9 2.0 0.9 9.8 9.5 0.3 0.0 0.0 9.8 8.5 1.3 9.8 Q211 0.4 2.0 2.5 1.8 6.7 4.8 1.9 0.0 6.7 3.0 3.6 6.7 Q311 0.4 3.7 0.2 0.7 5.0 3.3 0.5 1.2 5.0 2.6 2.4 5.0 Q411 0.4 11.0 4.2 0.9 16.5 10.5 0.5 4.4 1.0 16.5 11.3 5.2 16.5 FY11 2.1 22.7 8.8 4.3 37.9 28.1 3.2 4.4 2.2 37.9 25.4 12.5 37.9

Source: PwC analysis of mergermarket, Reuters and Dealogic data

Note: May contain rounding errors

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About PwC M&A advisory services in the financial services sector

PwC is a leading consulting and accounting adviser for M&A in the FS sector. Through our Corporate Finance, Strategy, Structuring, Transaction Services, Valuation, Consulting, Human Resource and Tax practices, we offer a full suite of M&A advisory services.

The main areas of our services are: lead advisory corporate finance. deal structuring, drawing on accounting, regulation and tax requirements. due diligence: business, financial and operational. business and asset valuations and fairness opinions.

loan portfolio advisory services including performance analysis, due diligence and valuation. post-merger integration: synergy assessments, planning and project management. human resource and pension scheme advice. valuations for financial reporting purposes.

About this report

The main authors of, and editorial team for, this report were Nick Page, a partner and Fredrik Johansson, a director in the Transaction Services Financial Services team at PwC UK in London. Other contributions were made by Andrew Mills of Insight Financial Research and Maya Bhatti, Valerie Martin, Tina Mayo, Natasha Pitchacaren and Simin Varghese of PwC UK.

Geared up for growth?

We can help you take advantage of the emerging opportunities for expansion and acquisition. Find out more about our M&A advisory services at

www.pwc.com/financialservices

12 PwC Sharing deal insight

Contacts

If you would like to discuss any of the issues raised in this report in more detail please contact one of us below or your usual PwC contact.

Nick Page
PwC UK +44 (0) 20 7213 1442 nick.r.page@uk.pwc.com

Fredrik Johansson
PwC UK +44 (0) 20 7804 4734 fredrik.johansson@uk.pwc.com

PwC Sharing deal insight 13

This publication has been prepared for general guidance on matters of interest only, and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this publication, and, to the extent permitted by law, PricewaterhouseCoopers LLP, its members, employees and agents do not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it. For further information on the Global FS M&A marketing programme or for additional copies please contact Maya Bhatti, Global Financial Services Marketing, PwC UK on +44 207 213 2302 or at maya.bhatti@uk.pwc.com

www.pwc.com/financialservices
2012 PricewaterhouseCoopers LLP. All rights reserved. In this document, "PwC" refers to PricewaterhouseCoopers LLP (a limited liability partnership in the United Kingdom), which is a member firm of PricewaterhouseCoopers International Limited, each member firm of which is a separate legal entity.